What do investors do when a stock that they are heavily invested in falls sharply? There are three types of reactions possible:

1. When stocks fall, many investors cut and run. Clearly, they feel that since a stock has fallen, it may never rise again and their losses may become permanent.

2. Other investors keep holding on, with the view that the fall is temporary and eventually their stock will recover. They are reasonably confident of their investment.

3. Still others actually use the period of low prices to buy more of their stock. They are the ones who know with full confidence what the stock is actually worth.

Of course, there are other factors involved in each of these three behaviours an investor displays; for example, the degree of diversification in an investor's portfolio or other personal financial circumstances. In general, I have observed that those who are in any particular category tend to stay there. However, sometimes the movement of the market teaches those who are in category 1 how they should actually be investing.

To illustrate this vividly, let me take you back to the crazy days of 2007-08. Let's compare how Stock A and Stock B did between January 1, 2008, and the end of March 2008, and then let's see where they are now. Note that these are adjusted prices to enable a correct comparison over the years.

From January 1, 2008, to March 31, 2008, Stock A fell 24 per cent and Stock B fell 41 per cent. During that period, the BSE Sensex fell by 23 per cent. Forty-one percent is a lot more than 24 per cent but in the midst of a market crash, it's in the same rough range. Now, 14 years later, Stock A is up about 800 percent while Stock B is down about 90 percent. As seasoned investors may have figured out, Stock A is HDFC Bank while Stock B is Reliance Infra.